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Moving into your first apartment = a major adulting achievement.
But before applying for your future spot, you’ll need to get a few things in order. And no, we don’t mean going down the Pinterest rabbit hole of new home décor.
Get together the three key numbers that matter to your financial health, so you can know how lenders may view you, and which apartments you can qualify for. Most Americans move between May and September, meaning it’s a pretty competitive space for renters. Turbo Tip: landlords predominately favor detailed, lease applications that showcase a complete picture of your financial health so they are confident in choosing the best applicant.
So in order to stay ahead of the competition (and set realistic apartment goals), here are the 3 key numbers you need to know.
Credit Score
Your credit score is a BIG factor landlords look at when considering your application. Your credit score is more than just a number—it represents how financially reliable you are and how well (or poorly) you manage your debt. Depending on where your score falls on the credit score scale (which runs between 300 and 850), this might be a make-or-break for your dream apartment. Not sure what your credit score is? It’s easy to get a free credit score report from Turbo!
If you’re working on improving your score or building credit for the first time, the good news is that many landlords accept co-signers. A co-signer is a person who is obligated to pay your rent if you can’t. If you plan on using a co-signer, make sure you know his/her credit score and have the #RealMoneyTalk on financial responsibilities before signing a lease.
Verified Income
With rent prices on the rise, landlords need proof to ensure you’re able to make the allocated payments each month. You can show proof of your verified income through bank statements, pay stubs, or job offer letters. Pro Tip: on average, housing often eats up 25-33% of your yearly net income. So before you set your rent pricing parameters on Zillow or Craigslist, be sure to do the math.
Debt-To-Income Ratio (DTI)
While not all landlords may ask for your DTI ratio, it is a key financial health indicator that shows if you’re living within your means. What is a good debt-to-income ratio? Lenders typically like to see 36% or less, but your landlord may have differing standards. You might be tempted, especially if you’re starting a new job, to upgrade your living arrangements and lifestyle to be in line with your increased income, but try to avoid this temptation at all costs!
Find a roommate to split the costs of housing, rent a cheaper apartment, or live in a less affluent area. If you can save even a hundred dollars a month on rent, that’s more money you can put towards paying off your debt.
Additionally, when submitting your application for a new apartment, renters may also ask for your ID (either your license or passport), Social Security Number, past rental history, a reference, and a check for the deposit (typically last month’s rent).
Now that you’re ready to rent, get your numbers with Turbo today so you can see where you truly stand financially. The Target household items section is waiting!
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Breaking a lease won’t hurt your credit if all debts are paid. However, if you leave debts unpaid, breaking your lease early can cause your credit to take a hit.
Breaking a lease is relatively common and can happen for a number of reasons. Oftentimes, a new job can require you to move midway through a lease. Other times, personal issues arise that can force you to cut your lease short.
As a result, it’s rather common for tenants to leave leases early, and it doesn’t make you a bad or unreliable tenant if you must. However, landlords will still expect full payment for the entire lease term, even if you’re moving out months in advance.
If you do have to your break your lease, it’s crucial you’re not indebted to your landlord. When tenants owe landlords money, landlords will sometimes hire collection agencies to collect debts, introducing a whole new set of problems—one of which can be a hit to your credit score.
Maintaining a good credit score is important for a number of reasons. A good credit score can:
Give you more housing options
Help you qualify for low-interest credit cards
Save on insurance
Make you a stronger job candidate
Your credit score follows you around wherever you go. Therefore, when your score goes down, it can be a tremendous setback—and can take you years to reconcile.
As a result, protecting your credit is one of the most important things you can do—and breaking a lease shouldn’t have to jeopardize it . Keep reading as we explain how breaking a lease early can affect your credit and ways you can break a lease while protecting your credit.
Does breaking a lease early affect your credit?
Breaking a lease doesn’t directly show up on your credit report, but the consequences of breaking a lease, if you’re indebted to your landlord, can have compounding effects that sometimes result in a knock to your credit.
If you leave debts unpaid after breaking your lease, your landlord will likely use a collection agency to reclaim your debts. Your landlord probably won’t report the debt to a credit bureau, but the collection agency likely will.
If this happens, your credit will suffer, which can greatly affect you down the road.
Ways breaking your lease can hurt your credit
Like we said, breaking your lease doesn’t directly affect your credit, but the fallout often can. If you break a lease and don’t pay outstanding debts, your landlord may handle it in a couple different ways. A few possibilities include:
Your landlord may involve a collection agency: As we mentioned earlier, a landlord will sometimes bring in a debt collector if you don’t pay your remaining rent. If this occurs. the collection agency will likely report you to a credit bureau.
You may have trouble renting again: If your credit takes a hit, it will likely affect your ability to rent in the future. A 620 or higher is the usual score needed to rent an apartment. Most landlords run credit checks prior to renting to a tenant.
How to break a lease and protect your credit
The lesson here is that it’s best to proceed with caution when breaking your lease. Use our tips below to ensure you leave your lease with peace of mind.
Review the lease contract
Knowing your rights as a tenant is the first matter to address when breaking a lease—and the lease contract is the place to start. Sometimes, the contract will give you an easy out, like paying a small fee or allowing subletting. However, it’s pivotal you review the intricacies of the contract before beginning the process of breaking the lease, so as to be aware of your rights as a tenant.
Be transparent with your landlord
Having a one-on-one conversation with your landlord is a must if you plan on breaking your lease. If you’re transparent with your landlord about why you’re breaking the lease, they’ll most likely work with you to reach a solution that benefits everyone.
Keeping your landlord in the loop is a great way to create a line of communication and ensure they don’t take any negative action against you.
Look for a subletter
Subletting isn’t allowed in all lease contracts, but if it is, it can give you peace of mind in breaking your lease. Subletting, by definition, means finding someone else to take over the remainder of your lease. If you elect to sublet, it’s essential to check with your landlord first to ensure them you’re subletting to a reliable tenant.
Since your name will remain on the lease, you’ll ultimately be responsible for any issues with the subletter. As a result, it’s important to screen whoever is taking over the remainder of the lease.
Pay outstanding rent up-front
If you’re able, paying your outstanding rent balance at the time you break the lease is typically a foolproof way to ensure the landlord doesn’t take any negative action against you.
While there may be more intricacies within the lease agreement when it comes to breaking the lease, settling outstanding debts eliminates the possibility of the landlord bringing a collection agency into the picture. And in almost all cases, disputes over breaking a lease boil down to outstanding debts.
Situations when you can break a lease without repercussions
There are certain situations where tenants are protected by law when breaking a lease; therefore, it’s essential to know when you can break a lease without repercussions. The examples below vary from state to state and can require that some specific notifications are made to the owner of the property before exercising your right to break the lease. It is important to know your responsibilities under your state law before breaking your lease.
The unit is uninhabitable/doesn’t comply with housing codes: If you believe that your residency isn’t complying with health codes, look into state laws to confirm your suspicion. States have certain health codes that rental units have to adhere to. If your rental isn’t complying, you can terminate your lease without repercussion.
Tenant rights were violated: While some tenant rights differ from state to state, federal rights like anti-discrimination laws, privacy laws and the right to a habitable home protect tenants on the national level.
You’re active military: Tenants who are active duty military can break a lease without repercussions. The Servicemember’s Civil Relief Act allows military members to break leases due to their service.
Breach of quiet enjoyment was violated: The Covenant of Quiet Enjoyment guarantees that the tenant will get a peaceful environment. This is implied in lease agreements and, if violated, allows you to break a lease without repercussion.
The lease has a termination clause: Some leases include a termination clause that just involves paying a small fee. Make sure you review the lease contract before telling your landlord that you’re breaking the lease to see if a termination clause is included.
Frequently asked questions
Navigating the legalities of a lease contract can be difficult for tenants. As a result, other questions often arise when breaking a lease. Some common questions tend to be:
How long does a broken lease stay on your credit report?
The broken lease itself will not appear on your credit report, but any unpaid rent or other fees can stay on your credit report for up to seven years.
Does paying rent build credit?
Paying rent won’t build credit unless you report your payments to a credit bureau each month. In order to do this, you’ll need to sign up for a subscription service that reports rent payments for you. Your landlord will also need to sign up for the subscription in order to receive the payments through the service.
Keep in mind that it may be unlikely that your landlord will want to participate in this system, since they likely have their own system for collecting rent payments.
Rent-to-own, which involves renting a home with the intent to purchase it at the end of the lease contract, does not directly affect your credit either. Unlike mortgage payments, rent-to-own payments are not reported to credit bureaus.
Can you get debts from breaking a lease removed from your credit report?
In general, no. Unless the debt is truly inaccurate, it’ll remain on your report for seven years.
However, if you pay the debt after the judgment is already added to your credit report, you can work with the creditor to have the debt marked as “paid” instead of “open” on your report. This can improve creditworthiness and give you a better chance of receiving loans and renting in the future.
Leave your lease with peace of mind
When you break a lease, it’s best to leave no shadow of a doubt that your credit will be protected. Whether this means having a candid conversation with your landlord, paying your outstanding rent amount or finding a subletter, there are best practices you can put into action to avoid having to fix poor credit down the road.
Finding ways to fix your credit can be difficult, and often requires the help of a professional. Lexington Law’s credit repair services could help you get back on track. Get a free credit assessment today.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Nature Lewis
Associate Attorney
Before joining Lexington Law as an Associate Attorney, Nature Lewis managed a successful practice representing tenants in Maricopa County.
Through her representation of tenants, Nature gained experience in Federal law, Family law, Probate, Consumer protection and Civil law. She received numerous accolades for her dedication to Tenant Protection in Arizona, including, John P. Frank Advocate for Justice Award in 2016, Top 50 Pro Bono Attorney of 2015, New Tenant Attorney of the Year in 2015 and Maricopa County Attorney of the Month in March 2015. Nature continued her dedication to pro bono work while volunteering at Community Legal Services’ Volunteer Lawyer’s Program and assisting victims of Domestic Violence at the local shelter. Nature is passionate about providing free knowledge to the underserved community and continues to hold free seminars about tenant rights and plans to incorporate consumer rights in her free seminars. Nature is a wife and mother of 5 children. She and her husband have been married for 24 years and enjoy traveling internationally, watching movies and promoting their indie published comic books!
Getting a mortgage is never a sure thing, even if you’re the richest individual in the world. And even if you have a perfect 850 FICO score.
There are a ton of underwriting guidelines that must be met to qualify for a home loan, both for the borrower and the property. So even the most creditworthy borrower could still run into roadblocks along the way.
Last week, the Federal Financial Institutions Examination Council (FFIEC) released Home Mortgage Disclosure Act (HMDA) data for 2012.
Though mortgage lending was up a big 38% from 2011, there will still thousands of declined mortgage applications.
In fact, the top mortgage lender in the United States, Wells Fargo, denied 84,687 of the 399,911 home purchase applications it received (21.2% rejection rate), including those that were pre-approved, according to a Marketwatch analysis.
Rejection Rates by Top 10 Mortgage Lenders in 2012 (Purchases)
Reasons Why Lenders Decline Mortgage Applications
Inadequate credit history
Lack of affordability due to limited income
Insufficient job history
Lack of funds for down payment, closing costs, and reserves
Issues with the property (as opposed to the borrower)
While the possibilities are endless, I can provide several reasons why a mortgage loan might be declined.
Credit History
Let’s start with credit, which is a biggie. First off, if your credit score isn’t above a certain level, your home loan application might be declined.
While the FHA permits financing with credit scores as low as 500, most individual banks have overlays that call for higher scores. So if your score isn’t say 640, you could be denied.
Even if you credit score is above a key threshold, a lack of credit history could prevent you from obtaining a mortgage. What this means is that those who didn’t open enough credit cards and other loans (student loans, auto loans/leases, etc.) prior to applying for a mortgage could be denied.
Seems unfair to be punished for not using credit, but mortgage lenders need to measure your creditworthiness somehow, and without prior datapoints it can be difficult to impossible to do so.
Staying in the credit realm, what’s on your credit report could hurt you as well. If you have recent mortgage lates, you could be denied for a subsequent mortgage.
The same goes for past short sales, foreclosures, bankruptcies, and so on, though the FHA has recently eased guidelines on that front.
Another credit issue that comes up is when borrowers make the mistake of opening new credit cards or other loans during or just before the mortgage approval process.
Doing so can hurt your credit score and/or increase your total monthly liabilities, which could kill your application in the affordability department.
Affordability and Income
Speaking of affordability, if you don’t make enough money for the mortgage you’re trying to qualify for, you could be denied. Banks have certain DTI ratio maximums that are enforced, and if you exceed them, you’ll be declined.
So attempting to borrow more than you can afford can easily lead to a denied app.
Where that income comes from is important as well. If you’ve only been at the same job for a few months, or less than two years, you’ll have some explaining to do.
Underwriters want to know that your income is steady and expected to be maintained in the future. If you just started a new job, who knows if you’ll last.
The same is true about sharp fluctuations in income – if your income all of a sudden shoots up, the underwriter might not be convinced that you’ll continue to make that amount of money until it’s proven for at least a couple years.
There’s also the odd chance that mortgage rates jump and if you don’t lock in your rate, you could fall out of affordability.
Assets and Down Payment
Another common problem is coming up with the necessary funds to close your loan. Generally, you need both down payment money and reserves for a certain number of months to show lenders you can actually pay your mortgage.
If you aren’t able to come up with the money, you could be denied, especially if there are certain LTV limits that must be met.
And if you try to game the system by depositing money from family or friends in your own account at the last minute, you’ll likely be asked to document that money or risk denial.
Property Issues
As I noted earlier, it’s not just about you. If the property doesn’t appraise, the loan will be put into jeopardy. If it comes in short, you’ll need to bring more money in at closing, and if you don’t have the money, you might need to walk away.
There are also those who try to convince lenders that a property will be a primary residence, when in fact it’s a second home or an investment property. This is a common red flag that often leads to a denial.
For condo or townhouse buyers, there are additional hurdles that involve the HOA and the composition of other owners in the complex. If too many units are non-owner occupied, or the HOA’s finances are in bad shape, your mortgage could be declined.
Even if it’s a single-family home, if there’s something funky going on, like bars on the windows or some kind of weird home-based business, financing might not happen.
There’s also good old-fashioned lying and fraud – if you attempt to pump up your income or job title, and it turns out to be bogus, your application will get declined in a hurry.
If you are denied, it’s not the end of the world. Simply determine what went wrong and look into applying with a different bank, perhaps one with more liberal guidelines. Or ask for an exception.
Of course, you might just need to wait a while if it’s a more serious issue that can only be cured with time, which is certainly sometimes the case.
Condensed List of Reasons Why Mortgages Get Denied
1. Loan amount too big 2. Income too low 3. Inability to document income 4. Using rental income to qualify 5. DTI ratio exceeded 6. Mortgage rates rise and push payments too high 7. Payment shock 8. LTV too high 9. Inability to obtain secondary financing 10. Underwater on mortgage 11. Not enough assets 12. Unable to verify assets 13. No job 14. Job history too limited 15. Changed jobs recently 16. Self-employment issues 17. Using business funds to qualify 18. Limited credit history 19. Credit score too low 20. Spouse’s credit score too low 21. Past delinquencies 22. Past foreclosure, short sale, BK 23. Too much debt 24. Undisclosed liabilities 25. New or closed credit accounts 26. New/changed bank account 27. Credit errors 28. Unpaid tax liens 29. Unpaid alimony or child support 30. Divorce issues 31. No rental history 32. Fraud/lying 33. Undisclosed relationships with seller (non arms-length transaction) 34. Attempting to buy multiple properties 35. Property doesn’t appraise at value 36. Defects with property 37. Home business on property 38. Non-permitted work 39. HOA issues 40. Investor concentration in complex too high 41. One entity owns too many units in complex 42. Title issues 43. Lender overlays 44. You own too many properties 45. Co-signer for other loans 46. Property not really owner-occupied 47. Layered risk (lots of questionable things added up) 48. Incomplete application 49. Inability to verify key information 50. Plain old mistakes
A Great Credit Score, but She Can’t Get a Mortgage
Despite solid financial track records, many older Americans have a hard time refinancing because of their mortality risks and lower retirement incomes.
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Published April 8, 2023Updated April 11, 2023
In late 2019, Molly Stuart’s contract ended at the community college where she worked. “Normally, I’d just get a new job, but then Covid happened,” she said. So she collected unemployment for awhile, then retired.
In 2021, hoping to give herself some financial breathing room, she tried to refinance the three-bedroom ranch house she had bought 18 years earlier on an acre of land in Sacramento County, Calif.
“I’m an extremely good risk,” said Ms. Stuart, 60, a lawyer. She had a 30-year work history and a credit rating above 800. Her remaining mortgage was $102,000, but she estimated that the house was worth about $500,000. She had already paid off the mortgage on another house in Sacramento, which she rented out.
But her mortgage company denied her application. “I didn’t qualify for a refinance because I didn’t have enough income,” she said. “It was extremely frustrating.”
higher credit ratings than any other age cohort, yet recent studies have shown that they’re substantially more likely to be rejected for most kinds of mortgages. That raises barriers for older Americans hoping to renovate or retrofit their homes, or to extract home equity as a buffer against medical expenses, widowhood or other crises.
Much of older adults’ wealth is tied up in real estate. Among homeowners aged 65 to 74, home equity represented about 47 percent of their net worth in 2019, according to federal data; among those over 75, it was 55 percent. Among Black homeowners over 62, it accounted for almost three-quarters of their net worth.
But a house is not a financial asset, noted Lori Trawinski, director of finance and employment at the AARP Public Policy Institute in Washington. “It only turns into a financial asset if you take out a loan or you sell it.”
Getting that loan may be harder than owners expect.
analysis of more than 9 million mortgage applications collected through the Home Mortgage Disclosure Act from 2018 to 2020. He found that rejection rates rose steadily with age, particularly accelerating for applicants over 70.
paid slightly higher interest rates when they took out either refinances or new purchase mortgages.
The study’s methodology controlled for credit scores and property types, as well as economic and demographic factors, said Alicia Munnell, director of the Center for Retirement Research at Boston College, which republished Dr. Amornsiripanitch’s work. “He’s looking at the well-heeled and the less well-heeled. Age is still a factor.”
The federal Equal Credit Opportunity Act has long prohibited discrimination by age, as well as race, color, religion, national origin, sex, marital status, and receipt of public assistance income. Lenders are allowed to inquire about an applicant’s age, but that information may only be used legally under limited circumstances.
Dr. Amornsiripanitch determined, for example, that lenders attributed more than half of their rejections of older applicants to “insufficient collateral.” He speculated that lenders didn’t find those homes to be worth as much as applicants had thought, possibly because older owners occupy older homes, and might have deferred maintenance.
more apt to have debt, and more of it, than previous generations. That affects their debt-to-income (D.T.I.) ratios, a metric that lenders pay keen attention to.
“High D.T.I. is a key denial reason,” said Linna Zhu, a research economist at the Urban Institute in Washington whose research has also documented higher rejection rates at older ages.
A study she published in 2021 found mortgage denial rates of 18.7 percent for people over 75, 15.4 percent for those 65 to 74 and 12 percent for people under 65.
Some of the biggest names on the S&P 500, like Meta, Alphabet, and Amazon, will release earnings reports this week. These are the 21 market leaders to watch.
For most people, their career is their most valuable financial asset. Nothing else they own is likely worth as much (several million dollars over a lifetime). And even if they do have something more valuable (like an investment portfolio), it was probably earned as a result of their career.
As with anything valuable, you need to take steps to protect your career. That’s why financial websites recommend life, health, and disability insurance â to protect/replace the value of your career in case you die, get sick, or are physically unable to work. Having some of these insurances is wise for almost every worker. But there’s another form of insurance that’s equally essential.
This insurance is free â but it takes some work and planning. Its benefits go far beyond the time it takes to implement the steps involved. And in addition to increased income, this insurance may even give you more job satisfaction, less stress, and a longer life. Interested?
I have a good friend who recently graduated from MIT with a PhD in something I can’t even pronounce, let alone do. Even in this rocky economy, he has competing job offers. That’s a great position to be in, and I’m happy for him.
But when he told me about his options, I was surprised to hear him say he didn’t plan to negotiate his salary. One company offered him $10,000 less than another for a comparable position. “It’s okay,” he said. “That seems like Enough. Besides, it’s not a conversation I want to get into.”
This is a guest post from Steve who runs the popular blog MyWifeQuitHerJob.com where he writes about building wealth and entrepreneurship with an online store. Are you bored with your job? Are you tired of what you do on a day to day basis? The fact is that there are many people who aren’t 100% […]
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